Coal supply shortage may further trip industrial growth

Monday,November 21, 2011

New Delhi:An examination of three broad categories in the otherwise dismal two-year low industrial growth of 1.9 per cent in September will show one silver lining: electricity. But, crucially, that month also saw a 17 per cent decline in the contracting coal output. Now, that shows a potential to dampen the growth of this crucial sector in the coming months, according to analysts.

However, National Thermal Power Corporation (NTPC) maintains it does not see any deficit in coal supply. For, the country’s largest company in the electricity sector has its domestic and imported requirements tied up for a year.

Anaylsts, on the other hand, caution that if domestic coal supplies do not improve significantly, the impact may be felt in the form of forward linkage in electricity and manufacturing in the coming months.

Coal contracted 17.8 per cent in September year-on-year on top of a 15 per cent decline in August. In fact from April- September, it has grown only by a just 2.5 per cent year-on-year. For, flooding of mines, bandhs and strikes pulled down coal supplies from the two main coal companies -- Kolkata-headquartered Coal India Limited and Singareni Collieries in Andhra Pradesh.

Economists argue that the vigorous electricity numbers till September will not be as promising in the coming months since the effect of coal shortage comes with a lag effect. Electricity generation grew by 9.4 per cent in the first six months, against a meager 3.8 per cent in the corresponding period last fiscal.

Kuljit Singh, power analyst, Ernst & Young, says power generation companies have been holding up the output numbers through coal imports, gas and solar inputs. “But if domestic coal supplies do not improve in the coming months, it will definitely impact power generation,” he told Business Standard. The expert, however is confident of an early rectification of the problems in the coal sector, adding “these are temporary blips”.

NTPC, on the other hand, says it does not foresee a problem with coal supplies for the 1975-founded company. In fact, the Delhi-based entity is consistently adding capacity. “We hope to add over 4000 MW capacity this year,” says an NTPC official. “We don’t see any deficit from our side.”

All the same, he is not willing to attribute the less generation in the power sector to coal shortage. “It is rather because of the bad health of the SEBs (state electricity boards),” he claims. “That is leading to a low demand of electricity. This, in turn, can lead to low generation.”

For the record, coal output in the index of industrial production (IIP) is calculated on the basis of despatches -- and not actual production. So, much of the coal problem may be related to logistics problem as well, according to analysts.

Anis Chakravarty, who is director of Deloitte, Haskins and Sells, predicts a chain reaction following the mining contraction. It will affect power generation, and ultimately hit manufacturing, he adds.

Electricity constitutes just over 10 per cent of the IIP. As such, a bit of fall in its generation may not impact much the overall industrial growth. But, it would have a cascading effect on manufacturing, which constitutes the bulk of the IIP.

In September, the manufacturing output expanded by only 2.1 per cent year-on-year, dragging down industrial growth, since it constitutes over 75 per cent of the IIP.

(sourced BS)